A Simple Guide to Paying Off Debt
In this guide, we will explain the simple tricks to paying off debt. In our debt repayment series, we will go much more into detail on the different strategies you can use to getting out of debt. But for those that are looking for an easy-to-follow introduction, you’ve come to the right place.
We realise talking about debt and understanding your own debt can be difficult and challenging. Some people will shy away from even knowing how much debt they are in. But this only makes your situation more difficult. This is why we have come up with a simple guide to help you overcome the initially daunting task and easy ways to start chipping away at it.
So how do you start paying off debt?
To begin with it’s important to check how much debt you’re really in. Whether that’s credit card, loans, mortgages, student debt, or other forms of credit; write the totals all down and know what you’re working with.
From here it would be a good idea to see how much interest, if any, you are paying on these payments. For example, on a credit card you may have an interest free period, so carrying a balance may not be actually hurting your finances (as long as you’re still paying the minimum repayments). BUT your loan has an 8% interest rate, therefore it is important to try and pay this down as quickly as possible.
After you know the amount, and your interest rates on each individual lines of credit. You can then start thinking what the best plan is for yourself. Below there will be some debt repayment strategies you can choose from. Remember; only you can decide what the best plan is for your situation, but make sure you have all the information before making that decision.
Debt Repayment Strategies
The series will go into much more detail in these strategies in other blog posts; but here we introduce two well known successful strategies.
1. Debt Snowball: This is where you focus on paying off your smallest debt first (while paying the minimum repayments on your other debts), then when this is paid off, pay your next lowest debt. This is apparently supposed to motivate people to keep paying their debt off as they can see progress much quicker.
2. Debt Avalanche: This is where you focus on paying off your highest interest rate debt first (while paying the minimum repayments on other debts), then the next highest rate, and so on. This is the approach which actually saves you more money because you will pay less interest. However, some people find this strategy difficult to follow because you see progress much slower as you’re tackling bigger debt payments.
Other debt repayment strategies
Other common strategies to tackle debt can be ‘Debt Consolidation‘. This is where you combine multiple old debts into a new single payment. Crucially, this should only be done if you will have a lower interest rate as this will mean you will have a shorter payoff period. It should also make your payments lower and more manageable. There are multiple ways to consolidate debt into one payment. These include: a personal loan and a balance transfer card. The latter can be a really good way to reduce debt if you can find a long interest free period.
A little tip: If you are thinking of consolidating your debt, make sure you maintain viewing your credit score and do eligibility checkers before applying for a loan. You can find more information on what affects your credit score and how you can improve your credit score by clicking here!
Budgeting: If you are in debt it’s a great idea to actually start budgeting your finances so you know where your money is going. You’d be surprised how many people buy *a coffee here* or *some new clothes there* and not realise that they’ve been constantly spending money. Having a budget can be a really good way to track your expenses which may put you off buying non-essential purchases. Remember: The less you spend the easier it will be to pay off your debts.
The key to debt repayment strategies is firstly, understanding how much debt you’re actually in. But, discipline is also really key. Debt can be really stressful but if you can start making small changes and put a plan together you will see a big end result.
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